Accruals explained
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- เผยแพร่เมื่อ 28 พ.ค. 2024
- Accruals, accrued expenses, and accrual accounting. The accrual principle is used extensively in the business world, but not intuitively clear to everyone. This short tutorial provides clear and simple examples of the accruals concept and accrual journal entries, so you can contribute to the discussion in your company next time the topic comes up!
⏱️TIMESTAMPS⏱️
0:00 Introduction to accruals
0:42 Expense accruals vs revenue accruals
1:10 Expense accruals
3:25 Accrual example
5:18 Accrual journal entry
6:35 Manual accruals
7:42 Accrued revenue
In many companies, the topic of accruals resurfaces at the end of every period, usually as a variation on this question asked by the CFO or corporate controller: “Quarter-end is near…. Do you have any accruals that need to be included?” Most finance people would know what the CFO means here, and the CFO probably assumes the rest of the business does as well, but that is often not the case.
The question from the CFO could actually mean two things: are there any expense accruals to be made, or are there any revenue accruals to be made? You would make an expense accrual when expenses have been incurred for which we have not yet received an invoice from a supplier. You would make a revenue accrual when goods or services have been delivered, in other words the revenue has been earned, but we have not yet actually billed the customer. Using accruals allows a business to more closely adhere to the matching principle. It is one of the #accountingbasics that both finance and business leaders need to understand.
If you have any accrual examples for your company, then please share them as a comment below this video.
Once you understand accruals after watching this video, deferrals and prepaid expenses are an important topic to study next:
Adjusting entries complete tutorial • Adjusting entries
Deferred revenue • Deferred revenue expla...
Prepaid expenses • Prepaid expenses expla...
Prepaid expense examples • Prepaid expense examples
Philip de Vroe (The Finance Storyteller) aims to make strategy, #accounting, finance and leadership enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers training in various formats: TH-cam videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!
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Lots of exciting and helpful new videos coming up! Be sure to click the like button, subscribe and turn on notifications to ensure you don't miss anything. Watch my video on prepaid expenses (the opposite of accruals) next: th-cam.com/video/hUz39T8-V1I/w-d-xo.html
I got hired 3-weeks ago as a Financial Analyst and my work involves lots of accruals and closing the books. My company offers no real training and it's my first job in my field of study since I graduated college two years ago, so this video is life saving for me. I had completely forgotten about Accruals from my Accounting classes. Thank you so much for making this detailed tutorial.
Congratulations on your new job, Angelene! And thank you very much for the kind words. Perhaps my follow-up video on adjusting entries in general (which includes accruals) can help you as well: th-cam.com/video/57CST6_RtWk/w-d-xo.html Let me know if you come across any topics in your job that I haven't covered in a video yet, always looking out for new ideas!
@@TheFinanceStoryteller That is awesome and thank you! You are truly generous with your time. I'm about to go check the suggested video because I'm sure it will definitely help me. You make life a little easier for many of us.
Happy to help! Finance is fun. ;-)
Omg! Same here!
How did it go? Im in the same boat and feel overwhelmed.
Its better than the lecture at university :)
Not only did you help me further understand a solidify the concepts, but you provided great hints and workflow, thank you!!
Very happy to hear that, Raul! :-) Have you watched the related videos on prepayments yet? These might be useful for you as well. th-cam.com/video/hUz39T8-V1I/w-d-xo.html
These videos have saved my ass, You explain these concepts better than my finance professor does LOL.
Happy to help!!!! :-)
Thank you so much for this clear and uncomplicated explanation. I have just got hired as a finance intern, they are not really training me and I am responsible for accruals and month end close. This was really helpful thank you.
Glad it was helpful! That's where I started as well.... Here's an overview of multiple adjusting entries which might come in handy: th-cam.com/video/57CST6_RtWk/w-d-xo.html
Thank you. Very well explained. Especially the examples. This is really good for work related and job interview preparation.
Thank you for the compliments! I think you will enjoy the related video on prepaid expenses as well: th-cam.com/video/hUz39T8-V1I/w-d-xo.html
Amazing, watching this before my interview today!
Wishing you lots of success, Aaren! The sequel on various types of adjusting entries is good too: th-cam.com/video/57CST6_RtWk/w-d-xo.html
This has been very helpful for me. I do consultancy for many companies and now that I’m getting more involved on the financial side of the implementation the accruals were a question in my mind. Great and simple explanation.
Now I understand fully the automatic or manual ‘accrual reversal’ needed by month end.
Great to hear that! Thank you for watching and commenting. I think my video on prepaid expenses (kind of the opposite of accruals) might be useful for you too.
I printed all your examples to help me when my mind goes blank during this process. Thank you.
That's wonderful, Molly! I made a sequel to this video called adjusting entries, which includes accrued liabilities and accrued revenue, but also deferred revenue and prepaid expense. There are more useful examples in there: th-cam.com/video/57CST6_RtWk/w-d-xo.html
@@TheFinanceStoryteller I am struggling with making the monthly accrued vacation je. Do u have a tutorial on that? I have all the amounts but I’m not sure if I je the change or the totals each month. Can u advise. Thank you.
@@mollymacfadden539 That depends on whether the journal entries for this in the past were on a reversing basis or not. I would suggest to start with analyzing the account balance for the accrued vacation liability on the balance sheet (what is the amount in there currently, what were the movements in and out historically).
This was very helpful. Thank you!
You're very welcome! More on the topic of adjusting entries (of which accruals are but a subset): th-cam.com/video/57CST6_RtWk/w-d-xo.html
Concept explained in the best possible manner 👍🏻
Thank you, Varsha! So nice to hear that. Thank you for the compliment. I have made a follow-up video covering more types of adjusting entries, this might also be useful for you to watch: th-cam.com/video/57CST6_RtWk/w-d-xo.html
Helped a lot!! Thanks so much!! God bless!
Thank you for watching and commenting, Atika! :-)
This is the best video on TH-cam explaining this concept 👍🏽🔥🧡
Glad it was helpful! That is a big compliment. Have a look at some related videos in the intermediate accounting playlist, the ones on adjusting entries and closing entries could also be very useful for you: th-cam.com/video/57CST6_RtWk/w-d-xo.html&pp=gAQBiAQB
@@TheFinanceStoryteller you are very welcome, and I was talking with pure honesty and truth. Your material is amazing. I’ll check out your other videos and get back to you with some questions on other topics, which I hope you can answer. Regards 🕉🙏🏽🧡
Sure! Happy to help. Please spread the word to friends and colleagues.
Good points and easy to understand and share with non finance people.
Thank you! I would recommend to watch my videos on prepaid expenses, and on deferrals, next.
Thank you, this is so helpful, I got stuck in class with the lecturer over complicating the accruals. This video really makes it so much clearer.
Thank you for the kind words! Yep, once you "get it", accruals are pretty easy. ;-)
thank you for the examples
You're welcome, Isaac! Thank you for watching. I have some examples for prepaid expenses as well: th-cam.com/video/drX-qrrvedo/w-d-xo.html
Thank you very much. It was extremely helpful 😊
Glad to hear that! I have put all my videos on adjusting entries (accruals, deferrals, prepaids) in a playlist: th-cam.com/video/57CST6_RtWk/w-d-xo.html Hope you find some more videos that are helpful for you.
Very good explanation, thanks
Glad you liked it, Markus! A more complete overview of adjusting entries can be found in this video: th-cam.com/video/57CST6_RtWk/w-d-xo.html It covers prepaid expenses, deferred (or “unearned”) revenue, depreciation, accrued expenses and accrued revenue.
very helpful!
Thanks, Kayla!
Thank you. Very clear
Glad it was helpful, Tunde! More information about various types of adjusting entries in this video: th-cam.com/video/57CST6_RtWk/w-d-xo.html
Thank you! i have a final in two hours and this is by far the clearest explanation so far
Glad it helped, Riley! Wishing you lots of success!!!
P.S. Please subscribe! You might need the channel again in the future. ;-)
Excellent man
Thank you! Happy to hear that.
The Finance Storyteller I did not FIND u r email
thank you!
You're welcome!
Thank you sir
You're welcome! I have related videos as well on prepaid expenses that might be useful for you to watch: th-cam.com/video/hUz39T8-V1I/w-d-xo.html
this is hardcore. I got lost with the statement. Around min 5
Hello Andres! Maybe go back to the discussion about which of the $ numbers is correct (@ 4 minutes into the video) and watch that again. If you understand what the right number is in current month expenses, then the journal entries will hopefully also start making sense.
Good videos
Glad you like them! Please spread the word to friends and colleagues.
thank you! very nice explained!
You're welcome, Salman! :-)
Thank you
You´re welcome! I have videos on related topics like deferrals and prepaids as well, that might complement this one on accruals. I have grouped them in the "Balance Sheet Analysis" playlist: th-cam.com/video/hUz39T8-V1I/w-d-xo.html
Nice class😍
Glad you like it, Vivek!
Geachte heer;
How about over on under accruals/deferrals at year end when they are spotted in subsequent periods? Do we do a reversal entry for the over/under amount back to accruals or the like?
I read that sometimes auditors check the accruals calculation versus the actual payments in N+1 related to accruals and corrections are needed. Bedankt.
Yes, I prefer to make accrual entries (for the full amount) that automatically reverse, so there are no "leftover balances" that remain on the balance sheet by accident. And yes, auditors are encouraged to check the accrual amount versus the actual amount recorded in the next period, to check for completeness and accuracy. You don't want companies to be underaccrued for expenses, as that would "transfer" expenses from one period to the next. On the other hand, you don't want to be overaccrued either, as that could be sign of "income smoothing". Some big accruals can be bonuses for the sales team ("earned" by the employee in one year, paid out early in the next year), warranty, vacation days, etc. Auditors want to check whether there is a robust system/process in place to monitor, calculate, and record these.
TODAY I START WATCH THE SERIES
Great! If you enjoy this video about accruals, then I think you will like the one about adjusting entries (prepaids, accruals, deferrals) as well: th-cam.com/video/57CST6_RtWk/w-d-xo.html
accrual examples: travel expenses, medical expenses, dental expenses, accommodation allowance, etc
Good ones, Nina!
Like I have said before your videos have been very informative, but I have a question regarding the invoices for the current month at 6:30. It appears the $800 due for the current month was credited straight to accounts payable instead of accrued expenses on the balance sheet. This may seem like a very easy question but is this because the company received the invoice during the same time period the service was performed? Therefore this wouldn't be an accrued expense?
Also the budget was $1000 for the current month and there was $900 worth of outside services performed and it was mentioned that $100 was under-spent as a result of this. My question is the company received $1200 worth of invoices though and made a payment of $600. So of that $600, I'm assuming $400 went to last months invoice and the other $200 went to partially the current months invoice of $800. So you would think $400 was under-spent (1000 (budget) - 600 (payment)). I know that we are focusing on current month service expenses, and accrued service expenses when viewing the balance sheet but this can get confusing when looking at the current budget of $1000 and what was under-spent in this example and how you would look at your budget.
Thank you for the questions! Let me try to answer them one by one.
1) Q: Crediting $800 straight to Accounts Payable. A: Yes, this is done to minimize the number of journal entries, as the invoice is received in the same period that the service is performed.
2) Q: Actuals versus budget. A: The $1000 budget is set on the "expense line item" level, not on the balance sheet level. The manager in charge of getting these outside services performed needs to monitor the amount of work (and the hourly rate at which it is billed) that gets performed, and stay within $1000 spending per month. The technicalities of how this is then being recorded through journal entries (accruals, invoices) is not really his problem. ;-)
@@TheFinanceStoryteller Thanks for the answer and getting back so quickly. I have watched all of the income statement and cash flow videos and currently working my way through the balance sheet videos. All have provided a clear picture for someone who doesn't have a financial background.
Thank you! Very happy to hear that! :-)
I took this course , it was Awesome in UDEMY
Thank you very much, Arturo! Great to hear that. I have added a few new related balance sheet videos since that course came out, for example this one on asset impairment: th-cam.com/video/lWMDdtHF4ZU/w-d-xo.html
Accurals for a company I am doing and just question there is purchase order and sales order invoice and sales order record s if in the right period what amount out of which invoice should I be using when noting my accural, thank you also video was great
Hi Amber. It depends.... For the purchase order issued to a supplier, were the goods received from the supplier or was the service rendered by the supplier? If so, then make an accrual in case the invoice from the supplier was not received yet.
@@TheFinanceStoryteller
Hi the goods where received by supplier do you do any one on one is which I could pay you for your time to share screens to get a bit of help with the work I'm doing at the moment thank you.
Hello Amber. No, I am in the business of making educational videos.
Hi!! In the scenario where a service is not specifically budgeted for but is required, how would you account for this? The service did not have a purchase order so no automatic system accrual, and not even a manual accrual as you did not know it was happening, how would you account for this?
Hello! From the wording of your question "but is required", I am not clear on whether or not the service has been delivered already, or is yet to be delivered? If the service has been delivered (without a PO), and the invoice has been sent by the supplier, and the validity of the invoice is not disputed by the company, then record debit service expenses credit accounts payable, which bypasses the accrual system. Not pretty, but has to be done to have a complete accounting of expenses and liabilities.
Can you explain TTL/Cash accruals. What I can understand from this ratio
Have not heard of that before, so cannot comment.
Ace Accounting’s controller, John Ace, hired an assistant, Annette Black. While guiding her in financial statement preparations, John Ace encountered opposition from Annette Black. She disagreed with making an adjusting journal entry at year-end, December 31, to accrue staff bonuses, since the bonuses were not paid. She wanted to wait until the staff bonuses were paid in February to record the bonuses. Her reasoning was that the results would be identical.
Required:
Write a business memo to explain to Annette Black why the adjusting journal entry to accrue the staff bonuses is or is not required.
how would i work through this problem? Im completely stumped
Hi Leiah! Matching principle: expenses should be recognized in the period in which they are incurred. Record in December: debit Compensation & Benefits expense, credit accrued liabilities. Record in February: debit accrued liabilities, credit cash. The basis for the journal entries should be the employment contracts, the controller should meet with HR to review these (at least the sections about bonuses in the contracts). If the right to the bonus is built up in the current year, then the expense should be recorded in the current year. Does that make sense?
@@TheFinanceStoryteller Yes! that clarifies alot, I'm taking an introductory accounting course online and finding a few concepts a bit tough! thank you so much!
Great to hear, Leiah! In a lot of cases, you need to ask yourself "what is the source document that is the basis for making or not making a journal entry", and "what are the debits and the credits for this?". I have T-accounted my way out of a lot of real-life situations, sometimes it's like solving a puzzle. :-) Here's the link to my playlist with accounting 101 videos that could be helpful for you: th-cam.com/video/OYql7Y9NnBg/w-d-xo.html and a more advanced accounting video I just finished yesterday about financial statement consolidation and related intercompany eliminations (once you express it in T-accounts, it becomes clear!). th-cam.com/video/DTFD912ZJQg/w-d-xo.html Enjoy, and let me know what you think!
sterke video!
Dank je! 😎
Question about the 3:25 example: how would someone know that they received $900 of outside services in a period before they’ve been invoiced for it?
Timesheets. If the company and its supplier have proper routines and controls, then somebody with sufficient seniority signs off on the maintenance hours performed. If at the same time, a rate has been agreed (it's probably not the first time that maintenance gets performed), then you can multiply the signed off hours by the agreed rate to know how many dollars worth of services were performed, even before you get invoiced.
Please explain below scenarios
1. Goods are not received but invoice received .
2. Invoice received today for cost incurred in two months
Thanks
Hello Amat! Those are good questions.
I am not sure what I would do with #1. Probably debit suspense account, credit accounts payable. And once the goods do come in debit inventory, credit suspense account.
Item #2 is clear: debit prepaid expense (balance sheet), credit accounts payable. Then subsequently debit expense (income statement), credit prepaid expense (balance sheet) two months later.
Here are two videos that might help you: suspense accounts explained th-cam.com/video/7_CBmXcJE2Y/w-d-xo.html and prepaid expenses explained th-cam.com/video/hUz39T8-V1I/w-d-xo.html
Hi if I have one vendor which is third party shisha supply to hotel he is bill us monthly so revenue we are recording previous month but we paying him next month then how the entries to be made
Hi! It depends on whether you keep inventory records, or consider the whole purchase as consumed in the period where it is delivered.
In the case of the former:
On delivery / receipt of invoice Debit inventory Credit Accounts Payable
On payment Debit Accounts Payable Credit Cash
I have one query related to accruals that is payment is made but invoice is not raised in given month so should accruals be created in this case ?
Hello! Can you clarify whether you have made a payment to a supplier, or have received a payment from a customer?
If you have made a payment to a supplier without having received an invoice, then I think there is a missing control here, as payment is made without the necessary document (invoice).
If you have received payment from a customer, then my initial thought would be debit cash credit deferred revenue (assuming revenue recognition criteria not met yet: delivery of goods or provision of service has not occurred yet).
Please clarify the situation, and we can discuss further.
@@TheFinanceStoryteller thank you for the guidance
And yes we have made payment to supplier..
.
Thanks for the clarification. If the supplier delivered goods, then I would suggest to book debit inventory credit cash. If the supplier delivered a service, then debit expenses credit cash. If the payment was for services to be provided in the future, then debit prepaid expense (balance sheet) credit cash. To get back to your original question: I don't think you need to make an accrual as the credit of the entry goes to cash (which has been transferred out of the company's bank account). The big question is where you put the debit (either expense or assets side of the balance sheet).
@@TheFinanceStoryteller
Thank you very much
Loved your explanation 😁 u get a new subscriber now
Awesome, thank you! Please spread the word, and watch the sequel to this video covering multiple types of adjusting entries: th-cam.com/video/57CST6_RtWk/w-d-xo.html
Accrued Expenses and Revenues:
Example 2: Interest on Investments
On September 1, Suresure Ltd places K60,000 on a 6 months investment with Ndalama Bank Ltd. Both organisations close their accounting period on December 31. The Bank pays interest at maturity of the investment. At year end, the 4 months equivalent of interest will be treated differently by both organisations:
For the Bank, this represents an accrued expense as Interest Payable
For Suresure, it represents an accrued revenue as interest Receivable
help please
Correct. The bank owes 4/6th of the interest as it builds up, even though it's only payable in cash at the end of 6 months. Suresure has earned 4/6th of the interest, even though it's only payable in cash at the end of 6 months.
dear sir/madam i try to find data for accrual accounting because my thesis is up to them can you please give me some information or links which can help me to understand the meaning of accruals in basic level
thank a lot
I think it is important to:
1) Contrast accrual accounting with cash accounting
2) Point out the differences between accruals, prepayments, and deferrals: th-cam.com/video/lBvnSgIGVnU/w-d-xo.html
My recommendation would be to search Google and TH-cam for reliable sources on the two topics above.
In the expense accrual examples at 2:00
Why in the first example when the employee claims the travel expenses in the next period, no costs will be incurred in that period as the amounts were already accrued for. But in the third example, when the payments do take place during the next period, the accrual is debited and cash is credited?
Why the accrual is not debited and cash is credited in the first example since the company pays the employee?
I think you are misinterpreting the examples. The pattern of journal entries is always the same. Period 1 debit expense (I/S), credit accrued expenses (B/S). Then in period 2 either debit accrued expenses (B/S), credit cash (B/S), or debit accrued expenses (B/S), credit accounts payable (B/S). Accrued expense adjusting entries occur when expenses are incurred before the invoice is received and/or payment is made, the expenses need to be captured in the current period as this is when you have incurred them. In the travel expense example, the basis for the accrual is an e-mail from a sales person to the finance department that he is taking a flight to Brazil in period 1, for which he will submit the travel expense claim in the system in month 2. For the outside services example, the basis for the accrual is a purchase order in the system which indicates that services have been received, but invoice has not been received. For the bonuses, the basis for the accrual is the calculation that the HR manager and the finance director make before the end of the year.
The organization got a donation from an annual donor of $1000 and deposited it in the bank. Last year’s donation was put in the 2018 fiscal year, but there is a surplus in the 2019 year and a projected deficit for the 2020 year. please help?
Hello Daanish Ahmed. I have no expertise on accounting for not-for-profit organizations or charities, so cannot help you on that.
question,
if $900 worth of services performed and the amount we accrued in total is $900, why the payment sent to the supplier is $600 only. im confused. please enlightened me
If you really want to go there.... Let's assume the supplier does weekly billing based on timesheets, but is not always up to date on that (hence the need for accruals for invoices yet to be received). Payment terms are 30 days after invoice date, and the company therefore pays those invoices that are due.
Very well explained. Here is my example for accrued revenue:
Swissport has a contract with Qatar Airways to provide ground handling services at DOH airport. This is agreed through a contract. On 23rd August 2020, Swissport handles a QR flight at DOH airport. The service was delivered on 23rd August 2020 and the billing terms state that the billing by Swissport must be done at the end of every month. As per contract the service is USD $100 per flight. On 23rd Aug '20, the T accounts will reflect following: Ground handling fees (debit) USD $100 and Accruals (credit) USD $100. On 1st September, the T accounts will change to following: Accruals (debit) USD $100 and Accounts receivable (credit) USD $100.
Is this correct?
Hello Sara! Before I can answer the question for you, please let me know for which company you would like to make the journal entries? Are you trying to record the accrued revenue in the books of Swissport? Or are you trying to record the expenses in the books of Qatar Airways?
@@TheFinanceStoryteller Yes I am trying to record the accrued revenues in Swissport books. Thanks.
Hi Sara! Thanks for clarifying. I would record on Aug 23rd when providing the service Debit accrued revenue (balance sheet) $100 credit revenue (income statement) $100. Then on Sep 1st when issuing the invoice Debit accounts receivable $100 credit accrued revenue $100 (this is a balance sheet to balance sheet journal entry within assets).
One more remark: the natural state for an asset account is to have a debit balance. Asset accounts increase by recording more debits to it, and decrease by recording credits to it. See my video on debits and credits explained: th-cam.com/video/n-lCd3TZA8M/w-d-xo.html
I just finished a video on the topic of accrued revenue: th-cam.com/video/Q3chGZEQ2Jc/w-d-xo.html
lol love the Tinder reference
I will use any available tools to make you remember accounting concepts! ;-)
I'm confused where does the $600 cash come from in the example...
Hello Anne! That is simply the sum of the invoice amounts that were due for payment during the month.
Can you teach payroll accruals. Having a hard time understanding
Thanks for the suggestion, but I am not an expert in that area.
I give one simple logical advice. Start with first step basic accountability: Income statement and balance. When you have understood those entry and exits aka incomes and outcomes than you need to learn the 2 forms balance in Excel. after start tutorials in ERP. The program will do all for you. Learn organizational types so you know if you have to pay tax and how much you have to pay tax out from your revenues. When you have understood and aknowledged this one, than you need to pass at second step: The principles of accounting. When you have learned that accounting principles you need to start reading about investing and what is worth a capital invest, what is the investement analyzing risks, forcasting budgets. So dont stay "stucked " in wonderland about accrurals, when you dont know basic. The learning proces is called vertical learning, you add knowledge on the top of your basic knowledge. That is what it takes to start understanding to not hang out of a "term " that you are not capable to understand it. The people and the organisations are complex and when you are lost in such a question ,....than ....Turn on the base!
@@TheFinanceStoryteller what’s erp
How many accrual royalty reports can you receive in 1 quarter
Hi! I don't think there is a generic answer to your question, it really depends on the agreement made between the payer and the receiver of royalties.
Need your help for this homework question that's due tomorrow:
Why would a company have deferred tax asset for “accruals not currently deductible”?
Hi Steve! The journal entry that the company made for “book” (US GAAP / IFRS) purposes is debit expense (income statement), credit accrued expenses (balance sheet). If this accrual is not currently deductible, it means that the expense in the income statement is only recognized for book purposes, not for tax purposes. A result, book profit is lower than tax profit. This leads to a deferred tax asset. See my videos on deferred tax assets versus deferred tax liabilities th-cam.com/video/7QKvzNV1Qw8/w-d-xo.html as well as the video on deferred tax assets specifically th-cam.com/video/MvXAljQD4II/w-d-xo.html
Where and when did you first come across the term "Accruals"? Let me know by commenting below.
3 months ago in my work. I will be promoted for facility managerial position on the coming months. This will definitely help.
Staff Accountant
What about a scenario When for services which will be capitalized for example you hire a vendor for building a portal for you which you capitalize. You issue a PO and suppose at the end of the year you know that 25 percent work is created. Will you create a accrual with accounting entry... Capital acct Dr to accrued acct Cr
Yes, that sounds like the appropriate thing to do. Important is to check what are the requirements for a "delivery" of this service to be complete. Are there steps in the portal building that are "milestones" which are signed off by client and vendor? How does the vendor invoice for the service (fully upfront, or several installments over the contract, or fully at the end)? I think that "supposing 25 percent is created" is a bit weak in terms of evidence to base a journal entry on, and would push for more formal documentation. Here are the links to some videos that could be helpful on this topic, intangible assets th-cam.com/video/-TzaG-VD2GU/w-d-xo.html and CapEx vs OpEx th-cam.com/video/na4jbAh_vkQ/w-d-xo.html
Yes so by 25 percent I meant that it would be signed off by both vendor and client. Vendor invoicing I am not sure how is it relevant as we are talking about accruals to be done irrespective of whether we receive the invoice... On a separate note I had another query, say we have a contract based on milestones and we know that the milestone will come up in next 3 mnths. , so would we accrue anything in 1st month say (1/3rd) or wait for milestone to complete and accrue
It would be good if you can cover a video for accruals for contracts
It would be prudent to accrue per month, it the amounts are probable and estimable. For documentation, it is good to have timesheets or other proof that the work was performed, plus to check in the contract what are the conditions for fees to be payable to vendor. Can the client complain about the quality of the work delivered, which puts the risk on the vendor in case work was performed which will not be paid for.
Thanks for the suggestion, but I think "accruals for contracts" is too much of a niche topic, plus I don't claim to be an expert in this area.
How it's possible in big companies (especially manufacturing). You don't know what is going on there till you get a document. Please somebody reply.
Hello Svitlana! My suggestions would be: use a Purchase Order system to track purchases versus invoices, make a list of vendors/services (for the previous period closing) that you can track in the upcoming closing, have the director of finance communicate (if needed through the CEO) to all managers of all departments that any accruals need to be communicated to finance.
well explained expenses part but revenue not explained properly.
Agree! That's why I spent some more time researching it and thinking about it, and came up with a video specifically covering accrued revenue: th-cam.com/video/Q3chGZEQ2Jc/w-d-xo.html Hope you like that one better.
watching a lot of accounting Vids so I don't look stupid in front of a job interview in 2 hours.
Wishing you lots of success, Troy!
is that a Dutch accent ?
Jazeker! Very much so. :-)
I still don’t understand 😢
Sorry to hear that, Avril! Let's see if I can help: my video on adjusting entries th-cam.com/video/57CST6_RtWk/w-d-xo.html (of which accruals are a part) has different examples and a different approach on explaining it, maybe that one can help.
Twitter id showing plz your work email for asking doubts
It is revealed to those that read carefully. ;-) Near the bottom of the "About" tab, next to "For business inquiries", hit the grey button.
I want your email sir fast
See the "About" tab of the channel.
Overly complicated, should have kept the examples simple
Thank you for the feedback. I guess I was striving for completeness in this video, rather than keeping it simple. Would appreciate it if you could watch the companion video on prepaid expenses (the "opposite" of accruals), and let me know whether you found that video less complicated: th-cam.com/video/hUz39T8-V1I/w-d-xo.html
why do you talk so fast ?
Thanks for the feedback. I try to pace myself so it's not too fast not too slow, but that is not always easy. The topic of accruals got me very excited, so then I talk faster. ;-)
When watching a TH-cam video, you can slow down the speed (in "Settings") to 0.75, maybe that would work better for you.
@@TheFinanceStoryteller ok